Blockchain and cryptocurrency are interrelated terms. It is ubiquitous for people to confuse these two terms. However, they are different from each other. In this article, you will learn about cryptocurrency vs. blockchain and their conceptual differences.
Before moving ahead with what is blockchain vs. cryptocurrency, let us first understand their meaning.
What is Blockchain?
A blockchain is a modern technology that helps record large amounts of information and maintain transparency.
Blockchain is formed of two words, block, and chain. Under this process, data is stored in blocks or groups in an electronic database, similar to a spreadsheet.
These blocks are connected to a chain of computer networks. Each block contains details of transactions. Once a block is filled, another is available, and the previous one is saved.
In simple words, a blockchain is a decentralized ledger used to record, store, and verify the data and transactions of a large group of people. It plays a significant role in the history of crypto.
Blockchain technology is used in different sectors such as finance, banks, education, health, the crypto market, etc. Ethereum, Bitcoin, and Litecoin are popular cryptocurrencies platform that are based on technology.
A quick glance
A blockchain is a decentralized ledger used to record, store, and verify the data and transactions of a large group of people.
Cryptocurrencies are digital currencies or coins used in decentralized markets over the computer network to buy or sell goods and services on the platform.
Cryptocurrency is the paperless currency used as the medium of exchange in the decentralized market. At the same time, blockchain is a technology used to record data in the Health sector, Smart Contracts, Voting process, and the Financial World.
- Cross broder transaction
- Medium of exchange
- Trading
- Raising Capital
What is cryptocurrency?
Cryptocurrencies are digital currencies or coins used in decentralized markets over the computer network to buy or sell goods and services on the platform.
Bitcoin, Litecoin, Dogecoin, Polkadot, Ethereum, and Ripple are the most used cryptocurrencies.
The government does not issue digital coins; therefore, it became essential for crypto companies to record these transactions and verify them to ensure transparency.
In order to maintain the record of all crypto transactions, blockchain technology is used. Let us understand the integration of blockchain and cryptocurrency with an example.
Bitcoin is the most expensive and popular cryptocurrency. However, do you know there is a limit of 21 million on Bitcoin supply which means it can never be mined more than this number.
Now to maintain the supply limit, it is essential to record all Bitcoin transactions. Globally numerous people own Bitcoin. Therefore, blockchain, a digital ledger, is used to record and verify these transactions.
Functions of Cryptocurrency vs. Blockchain
Cryptocurrency is the paperless currency used as the medium of buying and selling product and services in the decentralized market. The function of cryptocurrency is quite similar to forex currency.
One can also use cryptocurrency for trading and investing purposes. As crypto holds monetary value, its price fluctuates based on market conditions.
Traders buy and sell one crypto against another crypto or regular currency to take advantage of exchange rate fluctuation.
Blockchain is a technology that records transactions, so its scope is not limited to the crypto market. It is used in all the other sectors where it’s necessary to keep a record of transactions.
The primary function of the technology is to eliminate the need for central organizations or authorities to secure transactions.
Dependency
Cryptocurrency and blockchain are interrelated terms. However, crypto transactions cannot occur without blockchain, As it is essential to keep records and verify each transaction to maintain the value of digital currencies. Without it the crypto market may crash.
Meanwhile, blockchain is not dependent on cryptocurrency. In the present time, due to expansion, digital ledger technology is used in almost every market.
Investing in blockchain vs. cryptocurrency
Buying or selling cryptocurrency may result in high profit and loss as cryptocurrencies have a monetary value—also, the value of different cryptocurrencies changes according to market conditions.
Blockchain does not have any monetary policy. However, it is a technology that will help you make a profit by providing transparent and adequate information.
Usage of cryptocurrency vs. blockchain
Blockchain is used in different sectors for transparent data storage and verification.
Health Industry: Blockchain is used in the health sector to record a person’s critical data digitally. You can trace the medical history of a person through this record.
Smart Contract: The technology is used in preparing a smart contract that executes the buy and sell of the asset automatically based on predetermined algorithms.
Voting process: Blockchain has become increasingly popular in the voting process. The technology can be used to cast votes online, recording the data and verifying it.
Financial World: This technology is also popular in the financial market, including cryptocurrency, forex market, stocks, and commodities. Apart from these, banks also used to record and verify all the transactions of their customer.
Cryptocurrencies have a vast market and can be used as we use the centralized currency.
Cross-border transaction: You can transact using cryptocurrencies globally. The best part of using crypto for international transactions is you don’t need to pay commissions to intermediaries, banks or forex brokers.
Medium of exchange: Although cryptocurrencies are not acceptable in all countries. However, you can buy or sell goods and services on different crypto exchanges.
Trading: Cryptocurrency is a popular way for short-term and long-term investment. Like foreign currencies, stocks, and commodities, you can invest your money in crypto pairs and earn profit.
Raising Capital: Many companies and startups have started accepting crypto to raise their capital through ICO. So one can invest money in the stock market using crypto.
How blockchain works in cryptocurrency
Blockchain and cryptocurrency work together to provide users with the most transparent, effective, secure, reliable, and imputable transaction system. Let us understand how the integration of crypto blockchain work to provide this incredible system.
Transaction creation and verification: Whenever a person buys or sells cryptocurrency, it is recorded in a block. It includes information on senders and recipients with cryptocurrency’s value.
Minors and validators verify this transaction to ensure its authenticity after this block is formed with specific information.
Linking of Block: Each block has a cryptographic feature called a hash. It links the verified recent block to the previous block. The hash of all blocks is unique.
Hask linked the recent block in a chronological and immutable order to create a blockchain. Once a block is added to the chain, it is irreversible to remove from the chain.
Record of all transactions: Node is a feature used to record all the transactions of cryptocurrencies over a computer network. Node is critical to ensure decentralized and transparent transactions.
It maintains a copy of the blockchain and communicates with other nodes. It enables blockchain to run over the computer database. Every single update in a blockchain is recorded in a decentralized network.
Consensus Mechanism: In order to prevent scammers and malicious persons, blockchain technology uses a consensus mechanism to verify the proof of stake or work.
As proof of work, participants have to solve mathematical puzzles, and as proof of stake, they have to prove their crypto ownership.
Security of transaction: Cryptographic are used in blockchain to ensure safe and secure transactions. Under this method, the digital signature of the crypto owner is created using the private key and is combined with the transactions.
The recipient can verify the digital signature to ensure the authenticity of the owner. A digital signature gives the recipient the authority to access the funds and transactions.
Storage of cryptocurrency: Now, the question arises of how traders store cryptocurrency. These digital assets are stored in the wallet using software applications.
You can store, monitor and interact with cryptocurrencies using digital wallets. The software also provides private keys to use these digital wallets.
Conclusion
The concept of cryptocurrency vs. blockchain is quite complex. This term are interdependent and require each other for expansion.
The cryptocurrency market is becoming more popular day by day. However, even now, many people have trust issues with crypto and believe in traditional currency.
The combination of blockchain and cryptocurrencies makes people believe in the digital system and provide users with transparent, secure, and immutable decentralized currencies.
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